An interesting twist occurred in the market last week. The short-term overbought reading for Nasdaq, which is based on the advance/decline line, went from overbought to (almost) oversold. That is how crummy Nasdaq breadth was last week. Six of the last 10 trading days have seen Nasdaq breadth negative.
The same is true of net volume for Nasdaq: Six of the last 10 trading days have seen more downside than upside volume. Yet in the last 10 trading days, Nasdaq has managed to tack on 4%. Oh, sure, most of it came two weeks ago since last week Nasdaq only managed to eke out 1% (barely) for the week. But that's the weakness under the hood.
What do we do about this unusual move in the Oscillator? Well I suppose if I am going to be wrong about a pullback this week (a pullback this week is still my assumption) then perhaps we see small caps and Nasdaq in general rally, while the big caps pullback.
Let's now move to sentiment, because we already know about the Investors Intelligence bulls at 64%. We know about the four week moving average of the American Association of Individual Investors' bears being down near 20%, a reading typically seen prior to a correction. We also know that the National Association of Active Investment Managers have seen their exposure rise from 52 to almost 96.
Now let's check in on the 10-day moving average of the put/call ratio. It has turned upward, from the same place it turned up from in late January before that pullback, in mid February, before that pullback too. It is not as low as it was in late August though.
Furthermore, if we use the equity put/call ratio we see a series of higher lows since the January low, something that has tended to happen before a pullback.
Now look at the 10-day moving average of the Index put/call ratio. Last week we looked at the 21 day moving average, which is getting low, but here we see this indicator back where it was just prior to the June high as well as the September swoon. Perhaps it won't matter, but this says folks are not spending much money on hedging with index puts.
We looked at the 21-day moving average of the put/call ratio for exchange-traded funds last week, and as expected, it moved down quite a bit. In fact the ETF call buyers (relative to the put buyers) haven't been this persistent since that late August run. The moving average is now where it was at the early October high, also where it was in February 2020 but not quite where it was in late August.
Finally there is the 21-day moving average of the Volatility Index put/call ratio. For the first time in months the put/call ratio for the VIX has been over 1.0 for three straight days. While ultimately that sort of persistence should be bullish if it stays that persistent, the last three times it has turned up from this general level are noted on the chart.
Point A is the June 2020 high. Point B is the early September high and Point C is February.
Perhaps none of these sentiment readings will matter, but it is rare that every single one of them, no matter what moving average you slap on them tells the same story: There is very little downside protection in this market.